What’s behind the Envestnet executive shake up?

Acquisitions can be a healthy sign for fintech firms, but can also lead to costly, tangled webs of internal systems and strategies.

The wealth management technology platform Envestnet witnessed significant growth over the past several years and made dozens of purchases, notably snapping up platform provider FolioDynamix, wealth manamgent firm Tamarac and data aggregator Yodlee. However, that kind of inorganic growth can become confusing to customers, says Denise Valentine, senior analyst at the Aite Group.

To clear up any confusion, the Chicago-based firm defined two clear paths forward in a companywide reorganization. Envestnet Wealth Solutions, led by its CEO Bill Crager, will offer advisor technology through Tamarac. And the Data & Analytics team, led by its chief executive Stuart DePina, focuses on data aggregation, enterprise data management and analytics offerings. Concurrently, Anil Arora, CEO of Envestnet | Yodlee, is stepping down after nearly two decades with the firm.

“They are redefining themselves,” Valentine says.

At well over $400 billion, Envestnet has more than six times the assets of its nearest competitor in its core asset management platform business. Tamarac, the firm’s rebalancing, reporting and practice management software powerhouse, now folded under the wealth management arm, has $1.2 trillion in combined assets under management and services over 1,000 RIAs, according to the company.

“Although the public would have seen three business units, there were a lot of acquisitions in the past several years,” DePina says, referring to Envestnet and its two largest subsidiaries, Yodlee and Tamarac. “We’ve been on a journey.”

The firm’s competitors have also consolidated and new entrants are testing the wealth management waters. Plaid, a $2.6 billion banking data aggregator, made a push into wealth management with a reported $200 million acquisition of the wealth management aggregator Quovo. Plaid raised $250 million in December for expansion and quickly snapped up Quovo, a top competitor, which marked one of the first consolidations by two prominent data aggregators.

“They’re all our competitors,” DePina says of Plaid and Quovo. “Those firms compete squarely in the investment space. On the other end of the fence, and where we differentiate ourselves, is the combination that exists with Tamarac that allows us to have a broader universe.”

The Envestnet network spans 3,500 enterprises and over 92,000 advisors including relationships with some of the country’s largest banks, brokerage firms and RIAs, according to the firm. “Quovo and Yodlee are quite familiar with one another,” Valentine says. “It’ll be interesting to see how that acquisition develops.”

In November, Envestnet announced a strategic partnership with BlackRock, the world’s largest asset manager, which included the sale of 4.9% of its common stock for a $123 million, according to the firm. Envestnet also issued a warrant for BlackRock to purchase an additional 470,000 shares for up to four years.

The real advantage for Yodlee is the firm’s data analytics capabilities, says DePina. Envestnet is looking to use a wealth of credit card information to help large national retailers identify hot selling items and better understand what consumers are purchasing.

“Our biggest opportunity really isn’t planning,” DePina says. Instead, companies like Home Depot or Walmart could potentially purchase the credit card data to get a better idea of which products to stock on their shelves. No deals have been made yet, he says.

“Everyone is buying a whole lot of data these day and starting to sift through it all,” Valentine says. “Certainly, Yodlee do a masterful job in the aggregation field.”

Envestnet also leverages data around spending habits. For example, information about expenses help advisors change client behavior, DePina says. If a client spends too much on miscellaneous entertainment in a given month, Envestnet can automatically send alerts to remind clients to get back on track.

“We have access to expenses that happen on a recurring basis,” DePina says. For example, Envestnet can analyze credit information of an end investor, and if mortgage rates are on the move, find a better deal for the client.

Revenues for the Chicago-based firm topped $399 million in the first half of 2018, up 23% from the same period a year ago, according to company data.

Enterprise RIA clients should experience no change in service, says Bill Winterberg, founder of the consulting firm FPPad, in an email. “Yodlee is clearly a veteran in the account aggregation and personal financial management space,” says Winterberg, who has worked with Envestnet | Tamarac in the past. “Plaid only recently has been considered as a potential alternative by institutional and fintech companies seeking account aggregation solutions.”

Data aggregation and analytics has become a hot commodity in the financial services field. In 2018, three-quarters of asset managers reported employing dedicated data analytics staff, according to survey by Cerulli Associates. Of those who did not employ data analytics staff, 60% say they will create the position this year.

For Valentine, the move is characteristic of the overall trend of consolidation that has overtaken the financial services marketplace since the recession. “There is so much vertical integration,” Valentine says. “It’s a better way to help provide value to clients and it's all starting with data. That’s a huge driver. Where are you going to take that data?”